Presentation made by CRISIL at Solar Quater's Event-REIFF, 2017 Mumbai

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Tariff cloud over solar projects
4th Renewable Energy Investment and Finance Forum
November 10 2017, Mumbai

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Rahul Prithiani
Director – Industry & Customised Research
Energy & Commodities
M +91 8879125244 | D +91 22 3342 3574
rahul.prithiani@crisil.com
Viraj Vora
Regional Manager BD - Customized Research
M +91 96 19 008590 | D +91 22 3342 3369
Viraj.Vora@crisil.com
Contact details:

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Executive Summary
 Falling module prices, foray of large foreign players and Indian conglomerates, declining
Interest rates, stronger payment security, improving infrastructure and drop in the return
expectation of players led to competitive bidding.
 Credit quality of competitively bid solar projects to be supported by lower counterparty risk
and lower capital costs.
 Building a robust network, scheduling of RE power and flexibility in other conventional
sources critical to support expansion; further timely execution and implementation, to be
key monitorable.
 Downward revision of PPA tariffs would adversely impact the returns of solar projects. A
10 paise/unit reduction in tariff impacts equity internal rate of return by by 150-160 bps for
solar power.
 Contract termination is not legally allowed if there is no delay in project commissioning.
Even globally, for instance in Germany, despite, a fall in feed-in-tariff, there has been no
instance of such renegotiations on long term contracts.
 Further precedence is on contrary as an attempt of reneging ~960 MW of PPA contracts
by GUVNL was struck down by APTEL in 2013.

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Falling module prices, stiff competition led to sharp fall in
tariffs
Trend in bid tariffs – 28% CAGR drop over 13-17
Source : DISCOMs Notifications, CRISIL Research
Pun–Punjab; Raj–Rajasthan; Kar.–Karnataka; M.P–Madhya Pradesh; T.S–Telangana; A.P–Andhra Pradesh; NSM–National Solar mission; RUMSL–REWA ultra mega solar park
Module
prices fell at
a CAGR of
~18% over
FY 12-17
Entry of new
foreign &
domestic
players
Lower
interest
rate &
rising
tenors
Higher
project
size
Return
expectati
on
Risk
mitigation
measures
Factors that have led to drop in bid tariffs
8.9
8.4 8.0
7.3 7.2 6.9 6.9 6.8 6.7 6.7
5.7 5.7 5.4 5.1 4.6 4.4
3.3 3.15 2.62 2.44 2.65
U.P,2013
Pun.,2013
U.P,2015
RJ,2013
Pun.,2015
(250MW)
Kar.,2013
Kar.,2014
M.P,2014
A.P,2014
T.S(0.5GW),
2015
T.S(1.8GW),
2015
Pun.,2015
(500MW)
M.P,2015
NSM-A.P(150
MW),2015
NSM-A.P(850
MW),2015
NSM-Raj(850
MW),2015
SECI-RUMSL
(750MW),2017
250MWKadapa
-NVVN,2017
250MWBhadla
IV,SECI,2017
500MWBhadla
III,SECI,2017
500MWGUVNL,
Gujarat
(Rs./Unit)

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Strong counterparties and payment security mechanism -
key driver for low bids
Quarter on quarter trend of highest and lowest tariffs(in Rs/unit) and off taker
Highest
bid
Lowest
bid
UP, 8.6
Punjab, 5.98
Haryana, 5.08
Tel, 5.72
NVVN, 4.8
SECI, 4.43 SECI, 4.3
SECI, 3.3 SECI, 3.15
Gujarat, 2.65
UP, 7.02
MP, 5.05
NVVN, 4.63
NVVN, 4.34 SECI, 4.43
SECI, 2.44
Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18

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Despite fall in tariffs, DSCR is protected for bids at Rs 3-3.5 /
unit
Reduction in capital cost and Interest rates to protect DSCR despite aggressive bids at around Rs 3/unit
Base case assumptions : Capital cost: ~Rs. 50 mn/MW; Int cost: 10.5%; Tenor: 15 years
End case assumptions : Capital cost: ~Rs. 36 mn/MW; Int cost: 9.5% ; Tenor: 18 years
1.23 1.3
0.16
0.49
DSCR for Rs. 4.34/unit Reduction in interest rate
and tenor improvement
Reduction in capital cost Redcution in tariff to Rs.
3.15/unit
DSCR for tariff of Rs.
3.15/unit
-0.55

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Outcome
Bet on capital costs key for projects bid below Rs. 3/unit
23% drop in the lowest solar park bids at Bhadla v/s 3% drop in module prices
• Pace of drop in module prices to continue
• ~20% DC side overloading – Reduces per MW cost by ~Rs. 2 mn/MW
• High PLF of close to 25% driven by better solar irradiance
• Reducing financing cost – Foreign funds, partial hedging, buyers credit
What led to the
bid aggression?
• Deceleration in project award activity – 45% drop in Q4 FY 2017, over previous quarter.
• Quest to build a portfolio, especially owing to large funds raised
• Intensifying competition – SBG, Phelan, Alfanar, Lightsource, EDF
• Tariffs rose slightly for GUVNL Bids due to GST, Rise in module prices for tier 1
manufacturers and allocation of projects outside the solar park (without assured land
and transmission infrastructure)
IPPs betting on
• DSCR expected to be 1.18 assuming Capital cost of Rs 32 mn/ MW (assuming 20% DC
side overloading), PLF of ~23%, Debt:Equity of 70:30 and Interest rate of ~9.5%
Timeline Project Location
Winning bid % Change w.r.t
previous bid
Crystalline module cost
Rs./unit $/Watt % decline
Feb-17 Rewa Project M.P 3.3 0.35
Apr-17 Kadapa Project A.P 3.15 -5% 0.34 -3%
May-17 Bhadla Project Rajasthan 2.44 -23% 0.33 -3%
Sep-17 GUVNL Bids Gujarat 2.65 9% 0.32 -3%

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Parameter
Expected
change
Quantum
of impact
Comment
Capital costs
Interest cost
Debt tenor
Plant PLF
Competition
O&M Costs
- Module prices expected to further drop ~9% to US$ 0.29/Watt by Mar 2018.
- Large developers banking on discounts of ~$0.02/Wp as well as hard
negotiation with EPC and BoP players.
- Developers betting on re-financing at lower cost, buyers credit, bond market
and low cost funding from multi-lateral agencies .
- 100 bps dip in interest rate improves equity IRR by 130-150 bps
- Debt tenors to rise to 18-20 years from current levels of 12-15 years
- Developers to leverage on technology to improve PLF – Use of 1500 V
system, trackers, low loss DC cables.
- Every 100 bps rise in PLF improves equity IRR by 200-250 bps
- Foray of new players, while existing player cementing their position.
- Players quest to build a portfolio is gaining preference over returns
- Rise in project size, improvement in system design and auto-cleaning of
modules, O&M costs to reduce.
- A 10% reduction in O&M cost/MW increases equity IRR by 30-40 bps.
Bidding to remain aggressive over the next year led by anticipation of
further drop in module prices, funding cost and stiff competition
Note: Negative Impact Positive Impact Medium Impact High Impact

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5 GW of RE projects are at the high risk of re-negotiation; Solar
projects are less impacted as compared to wind
9
• 1.1 GW in A.P
• 250 MW in Gujarat
• 215 MW in U.P
• 900 MW in Karnataka
• 1500 MW in T.N
• 1.2 GW in Jharkhand
• 7 GW of project
awarded/tendered at
tariffs of Rs. 5-8/unit
over FY 2015-17
• Capacities are majorly
located in U.P,
Telangana, A.P,
Karnataka and Punjab
• Solar projects awarded
at higher tariffs over FY
2010-2014 under
various state policies
• Lesser capacity under
such scheme; Hence
impact of discoms
limited
What led to PPA
re-negotiation ?
• Steep and rapid decline in solar bid tariffs; Bid tariffs quoted were as low as Rs 2.44/unit for solar power
in May 2017, down 45% compared with Rs 4.43/unit in March 2016.
• Pressure on discoms to reduce their ACS-ARR gap to minimum under UDAY scheme by FY 2019.
Expected
Outcome
• Projects where PPAs are yet to be signed or approved by the commission and/or project is yet to be
commissioned (under construction) are at higher risk.
• Commissioned projects are at lower risk as contract termination is not legally allowed
• APTEL struck down GUVNLs petition seeking to lower the PPA rates; MNRE and MoP supporting
consumers, ruling out the contract re-negotiation route.
Difference
between
Tariffs and
APPC
Declineintechnologycostover
past1year
REPenetrationinstate
DifferentialbetweenAPPCand
bidtariffs
ACS–ARRGap
Major factors that led to
reneging of contracts

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Notes

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Thank you

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